In 27 out of 34 OECD member countries, there is institutionally separate retirement-income provision for some or all public-sector workers. But the scope of these pension schemes varies significantly: from a modest top-up to the national pension arrangements (covering private-sector workers as well) to entirely independent retirement-income regimes.
... See More + Average expenditure on these schemes amounts to about 1.5 percent of GDP, or nearly a quarter of total public pension spending. Public-sector pension reform is an issue of great political importance in many countries. Central governments’ workforces are ageing rapidly in all but four of the 26 countries for which data are available. One in three of central-government employees were aged 50 and over in 2009, compared with 22 percent in 1995. This rapid ageing is pushing up the cost of pension schemes at a time when many OECD countries are embarking on fiscal consolidation. This paper examines the arguments and the options for reforming public-sector pension schemes from an international viewpoint. It assesses five different policies to reduce expenditures or increase contribution revenues, showing how these can have very different effects in a public-sector scheme than with national retirement-income arrangements.
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This paper presents and explains cross country data for mandatory publicly and privately managed pension systems around the world. This report is organized into three parts corresponding to three broad types of indicators.
... See More + These indicators relate to: (i) the relevant contextual factors referred to here as environment; (ii) pension system design parameters; and (iii) indicators of performance. Part one of the report provides some information on the environment in which the system operates, focusing on demographic and labor market conditions. Understanding the current and future path of demographic patterns, especially aging, will place the later section on performance into a clearer perspective. Part two on pension system design uses a standardized taxonomy to describe differences across countries. The data on system design are presented in two groups of indicators: (i) overall architecture of the system: pillars, schemes including civil servants and other special schemes, and (ii) operating parameters of the system, which includes two sub-groups: a) qualifying conditions: pension eligibility ages, and contribution history, and b) contribution rates, defined benefit (DB), and defined contribution (DC) schemes, and indexation. It should be noted that while many countries have more than one program providing retirement income benefits, unless otherwise indicated, most of the data refer only to the national scheme. Part three presents a set of performance indicators. The indicators included are core pension indicators that illustrate six key criteria of any pension scheme, namely: (i) coverage, (ii) adequacy, (iii) financial sustainability, (iv) economic efficiency (i.e., minimizing the distortions of the retirement?income system on individuals' behavior, such as labor supply and savings outside of pension plans), (v) administrative efficiency, and (vi)) security of benefits in the face of different risks and uncertainties.
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This note discusses how expected benefit levels can be assessed. The note points out the measurement of current benefit levels that are observable: they do not depend on any assumptions about the future.
... See More + However, they do depend on past contribution patterns, macroeconomic developments and parameters and rules of the pension system rules that, in many cases, no longer apply today. This briefing discusses the measurement of empirical average pension levels, minimum pensions and the evaluation of the extent of redistribution present within the pension system. Most of these measures, by their construction, take the form of a replacement rate: that is, they compare benefit levels (in the numerator) with some measure of earnings or incomes in the denominator. The note sets out how these ratios are constructed, what they measure and the pitfalls to be avoided to allow meaningful comparisons between countries.
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This introductory note updates the Bank's database on pensions, that was first established in the early 1990s to inform the research analysis on averting the old age crisis, and formulating policies to protect the elderly.
... See More + The note is a technical briefing that outlines the different measures included in the database. The note gives a taste of the wealth of information that the database will provide. The notes also presents some of the results to aid users in interpreting different data. The database and indicators are organized into three sets of information, which together form a flow. The indicators of pension-system performance depend on the design of the system and the context in which the system operates. For example, performance indicators of fiscal sustainability depend on underlying demographic pressures combined with the pension benefit formula. The entire database will also be available as a single stata dataset. This will enable users of Stata, a statistics and data program, to more rapidly to build tailor-made tables and charts and explore the relationships between different indicators.
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This briefing note looks at issues in the measurement of coverage by the formal pension system of people of working age. It is the second in a series describing the World Bank's Pension Reform Indicators and Database.
... See More + The coverage of the formal pension system has many determinants. These include the design of the system, labor-market conditions and demographic trends. This note discusses differences in concepts of coverage, measurement methodology and the availability of data. In some cases, institutional differences in national retirement-income schemes and limitations in data mean that coverage data cannot always be meaningfully compared between countries. These caveats are set out briefly here: for more detail, references and recommended further reading are provided at the end of the note.
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This note briefly sets out a methodology for calculating prospective pension entitlements promised in the future to todays workers. This method can (and has been) applied to a wide range of countries with very different pension systems.
... See More + The entitlements shown here are prospective. It looks at theoretical values and so illustrates the way the current parameters and rules of pension systems will work for different example individuals. This can be used to assess the adequacy of future benefits.
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The recent financial crisis means that investment risk is at the forefront of the minds of the public and policymakers alike. But there is a range of risks and uncertainties in pension systems.
... See More + At the macro level, pension systems are subject to a great deal of uncertainty over demographic, economic, financial and social developments. At the micro level, individuals can be affected at different stages of their lives as contributors, taxpayers, shareholders (both directly and indirectly through their assets in private pensions and other savings) and, ultimately, as beneficiaries. This note sets out a range of different risks and uncertainties. It then discusses ways in which the scope and scale of these risks can be measured. Finally, it looks at who, among the different actors in the pension system bears the risk. There are six major sources of risk and uncertainty in pension systems: Demographic risk: fertility and life expectancy, the two key drivers, are highly uncertain and past projections have often turned out to be wrong. Economic and financial risk: pension systems of all types can be affected by economic shocks which affect both sides of the pension system: revenues (through wages and employment) and expenditures (through earlier benefit claims). Investment performance of private pensions is subject to volatility. Policy risk: the political process can result in unanticipated changes in pension entitlements before or during retirement. Purchasing-power-inflation risk: changes in costs and standards of living are not adequately reflected in adjustments to pensions in payment, leaving older retirees particularly vulnerable. Social and labor-market risks: life events - such as persistent low earnings, long-term unemployment, caring for children or older relatives, divorce, widowhood - mean individuals build up little in the way of retirement income. Myopia risk: individuals are short-sighted and so consume too much now and save too little for later, especially for retirement.
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The cost of administering public pensions matters because it must ultimately be paid by individuals, either as taxpayers or through lower benefits.
... See More + High costs are a sign of administrative efficiency. A more efficient administration would reduce the burden on members and/or taxpayers. This note sets out a series of different measures of administrative expenses. The different indicators have their own strengths and weaknesses. The measure used can also be constrained by the availability of accurate information.
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This briefing note on economic efficiency explores indicators related to the incentive to work. The first part looks at the retirement decision.
... See More + There is now a mountain of evidence showing that retirement behavior responds strongly to the incentives embedded in the pension system. Equally, these incentives matter for equity reasons: people who work more and contribute more should have higher pensions. Yet many countries' pension systems continue to subsidize people who retire early. This effect comes through the parameters and rules of the benefits side of the pension system. The second part of this note, in contrast, looks at the contributions side. Pension contributions - along with other levies, such as income tax and social contributions for other programs - act as a tax on labor. They can discourage people from working or encourage them to work in the informal sector. This briefing examines a measure of the 'fiscal cost' of employing a worker, including pension contributions as well as income tax and other levies.
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This report on financial sustainability assesses the finances of pension systems over the long run. Issues of financial sustainability are mainly relevant to earnings-related schemes.
... See More + These are of three different types. First, defined-benefit schemes have a formula directly relating retirement incomes to individual earnings. Secondly, in points schemes, individuals earn pension points for each contribution which are then converted into a pension on retirement. Thirdly, in notional defined-contribution schemes, benefits depend on the amount of contributions made and notional interest credited to individual accounts.
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Pensions panorama provides a compendium of facts and analysis that should inform policy making and public debate about retirement-income systems around the world.
... See More + The section following the introduction sets out a typology: a way of defining and classifying different kinds of pension schemes. It shows which countries have which types of pension schemes, covering all elements of the retirement-income system, including resource-tested benefits and basic pensions as well as public, earnings-related, and compulsory private pension plans. Next, the study sets out the institutional detail: the parameters and rules of different parts of the retirement-income system. The next section presents the core, empirical results: future pension entitlements of today's workers with different levels of earnings from all sources. This section includes the familiar replacement rate indicator: individual pension entitlements as a proportion of individual earnings when working. The following section explores the important role that personal income taxes and social security contributions play in determining the relative incomes of older people. In particular, it shows net replacement rates (that is, pension net of taxes and any contributions, relative to earnings, net of taxes and contributions). The third section on empirical results looks at the link between pension entitlements in retirement and earnings in work. This analysis highlights the key differences in philosophy between different countries' retirement-income systems. Moreover, changes to the pensions-earnings link have been central to many recent reforms to retirement-income regimes. The concluding section sets out a number of dimensions in which the pension systems of 53 countries differ.
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Pensions panorama provides a compendium of facts and analysis that should inform policy making and public debate about retirement-income systems around the world.
... See More + The section following the introduction sets out a typology: a way of defining and classifying different kinds of pension schemes. It shows which countries have which types of pension schemes, covering all elements of the retirement-income system, including resource-tested benefits and basic pensions as well as public, earnings-related, and compulsory private pension plans. Next, the study sets out the institutional detail: the parameters and rules of different parts of the retirement-income system. The next section presents the core, empirical results: future pension entitlements of today's workers with different levels of earnings from all sources. This section includes the familiar replacement rate indicator: individual pension entitlements as a proportion of individual earnings when working. The following section explores the important role that personal income taxes and social security contributions play in determining the relative incomes of older people. In particular, it shows net replacement rates (that is, pension net of taxes and any contributions, relative to earnings, net of taxes and contributions). The third section on empirical results looks at the link between pension entitlements in retirement and earnings in work. This analysis highlights the key differences in philosophy between different countries' retirement-income systems. Moreover, changes to the pensions-earnings link have been central to many recent reforms to retirement-income regimes. The concluding section sets out a number of dimensions in which the pension systems of 53 countries differ.
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There are separate pension schemes for civil servants in about half of the worlds countries, including some of the largest developing economies, such as Brazil, China and India.
... See More + In the higher-income, OECD countries, spending on pensions for public-sector workers makes up one quarter of total pension spending. In less developed countries, this proportion is usually higher. Yet, very little has been written on the design and reform of civil-service pension plans, especially when compared with the voluminous literature on national pension programs. This paper compares civil service pension schemes across countries in terms of benefit provision and cost. We find that in many developing countries, these expenditures are a greater fiscal burden than in higher income countries where the tax base is larger. The paper also compares schemes within the same country covering private sector workers. Finally, we review key policy issues related to pension schemes covering civil servants as well as other public sector workers. In particular, we find that there is little justification for maintaining parallel schemes in the long run.
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Pensions panorama provides a compendium of facts and analysis that should inform policy making and public debate about retirement-income systems around the world.
... See More + The section following the introduction sets out a typology: a way of defining and classifying different kinds of pension schemes. It shows which countries have which types of pension schemes, covering all elements of the retirement-income system, including resource-tested benefits and basic pensions as well as public, earnings-related, and compulsory private pension plans. Next, the study sets out the institutional detail: the parameters and rules of different parts of the retirement-income system. The next section presents the core, empirical results: future pension entitlements of today's workers with different levels of earnings from all sources. This section includes the familiar replacement rate indicator: individual pension entitlements as a proportion of individual earnings when working. The following section explores the important role that personal income taxes and social security contributions play in determining the relative incomes of older people. In particular, it shows net replacement rates (that is, pension net of taxes and any contributions, relative to earnings, net of taxes and contributions). The third section on empirical results looks at the link between pension entitlements in retirement and earnings in work. This analysis highlights the key differences in philosophy between different countries' retirement-income systems. Moreover, changes to the pensions-earnings link have been central to many recent reforms to retirement-income regimes. The concluding section sets out a number of dimensions in which the pension systems of 53 countries differ.
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The tax treatment of funded pensions is a critical policy choice in pension reform. In countries with mature funded systems, like the Netherlands, Switzerland, the United Kingdom and the United States, pension funds are worth 85 per cent of GDP on average.
... See More + Pension funds in mature systems are large and could prove an attractive revenue target. They are a major force in private savings flows, supplying capital to industry and providing retirement incomes. The note continues with an in depth analysis of taxing pensions, and further, highlights the question, how generous a tax treatment? There are three arguments for taxing pensions more generously that other kinds of savings. a) to ensure people have a standard of living in retirement close to when they were working, b) to cut the cost of social security benefits for pensioners, and to increase long-term savings. The note concludes that : the 'expenditure tax' taxes pension savings once, either when contributions are made or benefits withdrawn it is the best way of taxing pensions, because it is neutral between consuming now and consuming in the future; most countries treat pensions close to the expenditure tax, the pre-paid tax, which exempts benefits, collects more revenue now, but may not be credible.
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The tax treatment of funded pensions is a critical policy choice in pension reform. In countries with mature funded systems, like the Netherlands, Switzerland, the United Kingdom and the United States, pension funds are worth 85 per cent of GDP on average.
... See More + Pension funds in mature systems are large and could prove an attractive revenue target. They are a major force in private savings flows, supplying capital to industry and providing retirement incomes. The note continues with an in depth analysis of taxing pensions, and further, highlights the question, how generous a tax treatment? There are three arguments for taxing pensions more generously that other kinds of savings. a) to ensure people have a standard of living in retirement close to when they were working, b) to cut the cost of social security benefits for pensioners, and to increase long-term savings. The note concludes that : the 'expenditure tax' taxes pension savings once, either when contributions are made or benefits withdrawn it is the best way of taxing pensions, because it is neutral between consuming now and consuming in the future; most countries treat pensions close to the expenditure tax, the pre-paid tax, which exempts benefits, collects more revenue now, but may not be credible.
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The tax treatment of funded pensions is a critical policy choice in pension reform. In countries with mature funded systems, like the Netherlands, Switzerland, the United Kingdom and the United States, pension funds are worth 85 per cent of GDP on average.
... See More + Pension funds in mature systems are large and could prove an attractive revenue target. They are a major force in private savings flows, supplying capital to industry and providing retirement incomes. The note continues with an in depth analysis of taxing pensions, and further, highlights the question, how generous a tax treatment? There are three arguments for taxing pensions more generously that other kinds of savings. a) to ensure people have a standard of living in retirement close to when they were working, b) to cut the cost of social security benefits for pensioners, and to increase long-term savings. The note concludes that : the 'expenditure tax' taxes pension savings once, either when contributions are made or benefits withdrawn it is the best way of taxing pensions, because it is neutral between consuming now and consuming in the future; most countries treat pensions close to the expenditure tax, the pre-paid tax, which exempts benefits, collects more revenue now, but may not be credible.
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This is the first comprehensive assessment of pension systems in the Middle East and North Africa. While other regions-Central Asia, Eastern Europe, and Latin America, in particular-have been actively introducing reforms to their pension systems, Middle East and North African countries have lagged behind.
... See More + This is explained, in part, by the common belief that, because demographics remain favorable-the countries are young and the labor force is expanding rapidly-financial problems are far in the future; as a result, pension reform does not have to be a priority in the broader policy agenda. However, the authors show that aging is not the only factor behind a financial crisis; the problem is the generosity of the current schemes. Moreover, badly designed benefit formulas and eligibility conditions introduce unnecessary economic distortions and make the systems vulnerable to adverse distributional transfers. The book does not present a general model that could solve the problems of all pension systems in MENA countries. Instead the authors focus on outlining a framework for guiding discussions on pension reform and making objective policy choices.
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The regulation and supervision of individual pension accounts has been a neglected issue. In contrast, much has been written on financing the transition to funded pensions and the design of benefits.
... See More + Yet effective regulation and efficient supervision are crucial to the success of pension reform. This note explores six issues in the design of a supervisory regime. It makes some comparisons between the performances of agencies in different countries and looks at four important areas of supervision : institutional and financial controls, and membership and benefits procedures. Some of the conclusions presented in this note are : professional expertise, transparency and perceived independence of supervisory agencies is essential to the success of pension reform; in countries where existing regulation is weak or ineffective, a new, separate agency is probably best placed (but not certain) to avoid repeating past failures; administrative independence is similarly preferable; salaries must be competitive with the private sector (and remain so) to recruit qualified personnel from public and private sectors and to limit corruption risk; separation of regulation and supervision can help limit the risk of regulatory capture.
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The regulation and supervision of individual pension accounts has been a neglected issue. In contrast, much has been written on financing the transition to funded pensions and the design of benefits.
... See More + Yet effective regulation and efficient supervision are crucial to the success of pension reform. This note explores six issues in the design of a supervisory regime. It makes some comparisons between the performances of agencies in different countries and looks at four important areas of supervision : institutional and financial controls, and membership and benefits procedures. Some of the conclusions presented in this note are : professional expertise, transparency and perceived independence of supervisory agencies is essential to the success of pension reform; in countries where existing regulation is weak or ineffective, a new, separate agency is probably best placed (but not certain) to avoid repeating past failures; administrative independence is similarly preferable; salaries must be competitive with the private sector (and remain so) to recruit qualified personnel from public and private sectors and to limit corruption risk; separation of regulation and supervision can help limit the risk of regulatory capture.
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